But unfortunately, among the top ten high-end famous tea brands in the world, Chinese tea companies are rarely seen, and among the more than 3,000 listed companies in the A-share market, tea companies have not yet appeared.

Wherever there are Chinese people, there is tea.

Which tea brand is the first thing you think of when it comes to Chinese tea brands? West Lake Longjing, Biluochun, Yunnan Pu'er, Tieguanyin... are not all! These teas you can name are all tea categories, not tea brands.

"Food, rice, oil, salt, sauce, vinegar and tea", China has a history of drinking tea for thousands of years, and is also the world's largest tea producer and consumer so far. But unfortunately, among the top ten high-end famous tea brands in the world, Chinese tea companies are rarely seen, and among the more than 3,000 listed companies in the A-share market, tea companies have not yet appeared.

It's time to turn the world around! According to the China Securities Regulatory Commission, Pu'er Lancang Ancient Tea Co., Ltd. (hereinafter referred to as "Lancang Ancient Tea") will be held on June 3 and plans to be listed on the main board of the Shenzhen Stock Exchange. It is sponsored by Huachuang Securities and may become the "first tea company stock" in A-shares.

Finance Network noticed that although the update is about to be launched, the problems of Lancang Ancient Tea relying on price increases to drive profits, multiple equity transfers and capital increase during the reporting period and inconsistent pricing cannot be ignored. In addition, Finance Network found that Liu Jiajie, the director and deputy general manager of Lancang Ancient Tea, originally worked for its sponsor Huachuang Securities, and only started working in Lancang Ancient Tea in March 2020. Three months later, on June 22, 2020, Lancang Ancient Tea submitted a listing application to the main board of the Shenzhen Stock Exchange.

relies on price increases to drive profits, and Pu'er tea pricing is full of chaos

Public information shows that Lancang Ancient Tea was established in 2002 and was changed into a joint-stock company in February 2018. It is a comprehensive tea enterprise integrating R&D, production and sales. The products are mainly Pu'er tea.

According to the prospectus (updated version on December 16, 2020), the operating income of Lancang Ancient Tea in the first half of 2017-2020 was RMB 250 million, RMB 299 million, RMB 380 million and RMB 188 million, respectively, and the net profits during the same period were RMB 59.3291 million, RMB 75.5945 million, RMB 81.1671 million and RMB 59.0615 million, respectively.

As of now, Lancang Ancient Tea has not disclosed its full-year operating data for 2020, but in the prospectus, Lancang Ancient Tea has made expectations for its 2020 performance. The prospectus shows that Lancang Ancient Tea expects its operating income to be 400 million yuan to 420 million yuan in 2020, a year-on-year increase of 5.13% to 10.39%; net profit attributable to the parent company's owners was 110 million yuan to 120 million yuan, a year-on-year increase of 35.52% to 47.84%.

Lancang Ancient Tea expects its profit level to grow rapidly in 2020. In this regard, it explained in its prospectus that the increase in revenue and proportion of ripe tea products with higher gross profit margins in 2020 may drive the company's overall operating income and gross profit margin to rise.

According to the prospectus, the sales revenue of Lancang Ancient Tea Ripe Tea Products in the first half of 2017-2020 was RMB 103 million, RMB 116 million, RMB 144 million and RMB 103 million, respectively, accounting for 41.49%, 39.12%, 38.01% and 54.94% of the main business revenue, respectively. In the first half of 2020, the proportion of revenue from ripe tea products did increase.

However, Finance Network noticed that the increase in sales revenue of Lancang Ancient Tea ripe tea products in the first half of 2020 is inseparable from the increase in its sales price. The prospectus shows that the average sales prices of Lancang Ancient Tea ripe tea products during the reporting period were 283.01 yuan/kg, 383.02 yuan/kg, 431.71 yuan/kg and 867.14 yuan/kg, respectively. In the first half of 2020, the average sales price of Lancang Ancient Tea ripe tea products increased by 100.86% compared with 2019. Sales revenue may increase in a short period of time, but how long can Lancang Ancient Tea last by increasing its price to drive profits?

Source: Prospectus

Lancang Ancient Tea Ripe Tea Products doubled in a short period of time, which is not unrelated to the long-term "disorder" of Pu'er tea pricing system.

According to the Finance Network, the current domestic Pu'er tea is still a seller's market, and the supply is in short supply, and we are rushing to purchase it. From the formation and change of commodity prices, it can be seen that the price of commodities is determined by supply and demand. When the supply is less than demand, the price rises. So are Pu'er tea generally more expensive? No! Finance Network noticed that Pu'er tea has long been in a polarized trend in recent years, with high-end tea auctions becoming increasingly fierce, and low-end tea prices have not risen but have reduced profits.

According to data from the China Tea Circulation Association, Yunnan Pu'er tea produced 155,000 tons in 2019, domestic sales were 105,500 tons, and domestic sales were 11.53 billion yuan. According to this calculation, the average domestic sales price of Pu'er tea in 2019 was 109.29 yuan/kg.However, according to a previous report by CCTV Finance, Pu'er spring tea production decreased in 2019, but the price of tea in most tea farmers did not rise but fell. In previous years, the price of more than 70 yuan could only be sold for more than 60 yuan per catty, while those high-end famous teas can still be sold at sky-high prices through auctions.

On March 5, 2019, Yiwu Gaogang Tea, known as 800, was sold for 1 million yuan; on March 21, 2020, the "Yibang Taishanghuang Ancient Tea Tree" claimed in 1700, was sold for 2.02 million yuan; on April 7, 2021, 10 kilograms of Jinxiu Tea Ancestral Fresh Leaves were sold for 10.68 million yuan on the Alibaba auction platform. There is constant hype, and "sky-high-priced tea" is common.

On April 20, 2021, Xinhua News Agency published a document titled "Tea "fried to the sky": You can buy a BMW with a cake, and you can buy a house in Guangzhou with one mention? 》, criticized the crazy hype of sky-high Pu'er tea. In early May 2021, the Yunnan Pu'er Tea Association received a "Risk Warning Letter" from the Office of the Yunnan Provincial Working Group for Prevention and Disposal of Illegal Fundraising. The specific content is as follows:

Source: Yunnan Pu'er Tea Association official microscope

Why is the pricing of Pu'er tea full of chaos? According to the Finance Network, the world's tea pricing power is still maintained in the form of auctions. The Colombo Tea Exchange in Sri Lanka is the largest tea auction market in the world today and is also a barometer of the rise and fall of world tea prices. At present, my country's domestic tea market is low in concentration, small in scale, and lacks leading companies that can affect tea pricing power; and my country has many tea varieties, few brand tea companies, and no pricing standards. In addition, the excessive speculation of tea in the collection market has led to inflated tea prices and chaotic pricing.

During the reporting period, Liu Jiajie, director and deputy general manager, was originally working for his sponsor Huachuang Securities

In addition to the above issues, Finance Network also noticed that during the reporting period, Lancang Gucha had multiple equity transfers and capital increase, and 14 new shareholders were added in the previous year of declaration alone.

Prospectus shows that from January 2019 to the present, Lancang Ancient Tea has added 14 new shareholders, of which 9 new shareholders have been added due to the clearance of entrusted holdings, 3 new shareholders have added due to capital increase and share expansion, and 2 new shareholders have added due to the inheritance of shares. Among them, the new shareholders Hua Yuxiang and Wang Ya, who were inheriting the company's shares held by their close relatives in May 2020 and July 2020 respectively.

Finance Network found that new shareholders such as free transfer of shareholders to immediate relatives and inheritance are more frequent in Lancang Gucha’s equity changes. According to statistics from the Finance Network, since its establishment, Lancang Ancient Tea has had a total of 29 equity changes caused by free transfer and share inheritance of close relatives, and 16 occurred during the reporting period alone.

It is also worth noting that Lancang Ancient Tea disclosed four capital increase and shareholding investment matters in its prospectus, but the difference between capital increase and subscription stock prices is relatively large. On February 25, 2012, Wang Juan increased her capital with cash, with a capital increase of 9.87 yuan/capital contribution; on August 20, 2017, Guangzhou Tiansu subscribed 1253,371.88 yuan for cash of 19.40 million yuan, with a capital increase of 15.48 yuan/capital contribution; on March 15, 2018, Shenzhen Jingmai Xin Industrial and Fors Investment increased her capital with cash, subscribed 2.70 million shares and 1.62 million shares, with a subscription price of 5.83 yuan/share; on September 20, 2019, Kaiyi Hengzheng, Zheng Wenping, and Jun Quanxin Ben increased her capital in the form of currency, subscribed 2.25 million shares, 2.25 million shares, and 1.5 million shares, with a subscription price of 13.30 yuan/share. The CSRC also noticed this issue and, in its feedback, asked it to explain the rationality of the pricing of each capital increase.

In addition, Finance Network also found that Liu Jiajie, the director and deputy general manager of Lancang Ancient Tea, was originally a director and deputy general manager of Lancang Ancient Tea, who was the sponsor of his IPO, and has served as the director and deputy general manager of Lancang Ancient Tea since March 2020. It is worth noting that after Liu Jiajie served for three months, on June 22, 2020, Lancang Ancient Tea submitted a listing application to the main board of the Shenzhen Stock Exchange.

Recently, the China Securities Regulatory Commission has introduced a series of measures to strengthen the supervision of equity penetration of companies intending to IPO and the investment of resigned personnel in the system. It is worth noting that although the resigned investment bankers are not within the scope of this supervision, Lancang Gucha IPO shareholders still need to inspect whether they can pass the test.

Chinese tea company brands are difficult to "become a circle". Lancang Ancient Tea may become the "first tea company stock" in A-share

Although there are many tea categories in my country, there are few tea companies that can be named. There is even an embarrassing saying that "there are thousands of tea companies that are not as good as Lipton, the UK."

The capital market has never favored tea companies. As of now, there are more than 3,000 listed companies in A-shares, but none of them mainly focus on tea.

At present, my country's tea companies are mainly concentrated on the New Third Board, and their corresponding market value and revenue are not large. According to Tonghuashun IFIND data, as of June 2, 2021, there were 11 companies on the New Third Board whose main business was tea, namely Bencaochun, Yizhong Industry, Zijiu Culture, Yuanquan Co., Ltd., Minghuang Natural, ST Wanyao, Daiwa Heng, JD Agriculture, Tianchi Co., Ltd., Guanzhuo Testing, and Zuichun Technology, whose market value is mostly between 90 million and 600 million yuan. Except for Zuichun Technology's operating income in 2020 of 334 million yuan and its net profit was 22.8462 million yuan, the operating income of the other 10 companies in 2020 will not exceed 200 million yuan, and its net profit will be less than 16 million yuan. In addition, except for Bencaochun and ST Wanyao that have not disclosed their 2020 annual reports, four other companies have suffered losses in net profit in 2020.